Design Considerations for a Retail CBDC

What are the current properties of using cash? 

• Inclusiveness: Cash does not require a bank account
• Offline use: No dependency on technology, either devices or network availability
• Free to use with instant settlement (compared with clearing networks)
• Privacy: All transactions are private, do not incur a data trail
• Security
• Wide acceptance

What are the two forms of CBDC?

A token-based CBDC: The digital version of cash, where the object is transferred from one wallet to another. The focus is on the verification of the validity of the token.

An account-based CBDC: Would see the transfer of a claim recorded from an account to another. The focus is on the verification of the identity of the account holder.

What are the key advantages and drawbacks of holding a CBDC account at the central bank?

Advantages:

It could support crime and fraud detection, although organised crime would be unlikely to use this conduit. It may help the central bank and associated government identify vulnerable groups, especially those locked out of the commercial banking system. They could deliver welfare directly (helicopter money), without relying on commercial intermediaries.

Drawbacks:

Central Banks would become competitors in the retail market ecosystem. Central banks would have to become involved with retail lending activities.The public may be concerned about potential abuse of power by governments through the central bank, so there could be an issue with trust. 

What are some of the challenges of CBDCs facilitating cross-border transactions? 

Cross-border transactions sit at the heart of international trade and economic activity. Their challenges are widely recognised as:

• High cost at around 7%
• Low speed due to disparities in national regulations. Cryptocurrencies such as Bitcoin target this inefficiency as part of their unique selling proposition.
• Limited access
• Insufficient transparency